Primark as a Subsidiary of ABF: Expansion Strategy

Primark as a Subsidiary of ABF: Expansion Strategy Primark is a subsidiary company within the Associated British Foods group. ABFs core values are shared taking care of our people, being good neighbours and fostering ethical business relationships along with the groups overriding principles in relation to human rights, employment conditions, business practices, suppliers and other stakeholders. Primarks success is led by a unique combination of fast fashion and lean operations with most based in India and Bangladesh. The first Penneys store opened in Mary Street, Dublin in June 1969 and within a year four more stores were added in the Greater Dublin area. Within a year, four more stores were added all in the Greater Dublin area. In 1971, the first large store outside Dublin was opened in Cork and by the end of that year there were 11 more stores in Ireland and one in Northern Ireland and the numbers of stores increasing to 18 by the end of 1973. In 1984, 5 more stores were added after acquisition from Woolworth. From 1984 to 1994 a further 13 stores were added in the UK and 12 in Ireland, bringing the total to 66 stores 32 in the UK and 34 in Ireland. Primark had a milestone year in 1995 with the development of the UK business following the acquisition of the BHS One-Up discount chain. This led to adding of 16 stores to the UK business in London area. The next major development occurred in 1999 with the acquisition of 11 stores from the Co-Op, including Reading. The Reading property, after much refurbishment, also facilitated the much-needed relocation of the UK buying offices. In 2000, C A retreated from the UK. Primark acquired 11 of their stores which brought store numbers to 108, consisting of 75 in UK and 33 in Ireland (Primark, 2010). A new store opened in Blanchard town, Dublin in 2001 and the numbers of stores was reached a figure of 108. It was followed by two new stores in Glasgow and Birmingham. At the end of 2001, the number of stores had grown to 109 (75 in UK and 34 in Ireland). In 2002, two major stores were opened in Glasgow and Birmingham. In the period of 2004-2005, 14 new stores were opened, and in 2005, six stores were acquired from Allders, three of which opened in 2006. In July 2005, the acquisition of Littlewoods stores by ABF plc which comprised an estate of 120 premises was completed, of which 41 stores were transferred to Primark. With an eye on global markets, Primark decided to go few step further by expanding its stores in Spain in 2006. After successful expansion in Spain, Primark decided to develop its market by entering Netherlands (Rotterdam) in December 2008, May 2009 in Germany (Bremen and Frankfurt) and December 2009 Belgium (Lià ¨ge). Despite the great expansions, internal capabilities to maintain healthy profits and lean operations, Primark, a cut-price clothes retailer, have had some ongoing bad press about their suppliers over the last couple of years including news about the use of child labour to produce their goods (Corporate EYE, 2009). The discount clothing chain beloved of bargain hunters, has been rated the least ethical place to buy clothes in Britain in 2005. Primark scores just 2.5 out of 20 on an ethical index that ranks the leading clothing chains on criteria such as workers rights and whether they do business with oppressive regimes. Mk One and Marks Spencer were ranked second and third worst for ethics by Ethical Consumer magazine (The Independent, 2005) PP protested outside stores in six cities drawing shoppers attention to the true cost of their clothes, collecting hundreds of signatures from shoppers and reaching an even wider audience through the press coverage they generated in 2005. Ethical Consumers criticised the company for not having a code of conduct, selling leather goods and environmentally-damaging PVC products and for operating in an oppressive regime China. According to Ethical Consumer, those people shopping in Primark because the prices are low, they must be aware that they are low for a reason (Ethical Consumer, 2010) Also Panorama puts Primarks claims that it can deliver cheap, fast fashion without breaking ethical guidelines to the test. Posing as industry buyers in India, the programmes reporter Tom Heap and his team find some of Indias poorest people working long, gruelling hours on Primark clothes in slum workshops and refugee camps far away from the Primark approved and inspected factories; breaking promises on child labour, working hours and wages. When presented with the results of the investigation Primark sacked a number of its suppliers and announced it was setting up a childrens foundation. Primark said it was unaware of the actions of its suppliers. They say they represent a tiny proportion of their supply chain and that its reinforcing its stringent ethical standards in meetings with suppliers (BBC, 2005) Companies often say that they are responsible but failing to recognize the real meaning and need of being ethical can affect a business in many ways. It is very important for businesses to operate in such a manner that if wont affects their reputation. This was the case with Primark who clearly failed to tackle the ethical issues well and ended up in the position of being the least ethical. Its ignorance of the interests of society led to many unsatisfied customers protesting against them. As corporate social responsibility refers to the moral obligations placed on organisations to act in ways which protect and improve the interests of the communities with which they interact and this may be in respect of local, regional, national or international communities, and relates both to social institutions and culture, and the physical environment, Watkinson Report (1973) has summed the essence of social responsibility as followed: A company should behave like a good citizen in business. The law does not (and cannot) contain or prescribe the whole duty of a citizen. A good citizen takes account of the interests of others besides him and tries to exercise an informal and imaginative ethical judgment in deciding what he should or should not do. This, it is suggested, is how companies should seek to behave. (Watkinson, 1973) Although the above statement seems quite reasonable, there is considerable debate about the extent to which organisations should respond and take on, to some extent, these kinds of responsibility. We can say that most organisations have accepted that they should, where resources permit, acknowledge at least some degree of responsibility above and beyond the law in respect of the concerns of society. Companies are, therefore, increasingly developing strategies to put this into effect, and in parallel, also developing strategies to enhance their reputation and using their socially responsible actions to build their image. Some of the main strategies for implementing social responsibility by companies are: Environmentally-Conscious Green Working Practices and Outputs with putting concern about the environment into practice means adopting policy and procedures that conserve and replenish resources, through such actions as: Ethical purchasing policies, Recycling waste products and using recycled products, Reducing the amount of physical resources used where they are not directly connected to the production process, or necessary within that (e.g. avoiding excessive packaging) and Energy conservation policies (GreenWorking, 2010) Social Accounting and Social Audit in order to assess how well an organisation is meeting its obligations to the society in which it operates, it has been suggested that it should compile a social balance sheet. This interesting idea reverses many of the points of classical accounting: for example, in terms of profit and loss, taxes paid by the organisation are treated as revenue (because they accrue to society) whereas fees and payments to the organisation are treated as costs (because they are paid by society). Society is seen as evaluating what it puts into the company and what it gets out of it. Social audit draws attention to the fact that a firms gain can sometimes be a loss to society (ASAN, 2009). Support for Community Projects using the term community to refer to the constituency served by the organisation: local, regional, national, international. Organisations support a wide variety of non-profit-making projects, such as theatre groups, concerts, sporting events. Ethical Outsourcing refers to the way in which operations are outsourced and the commitments made, and action taken, about the treatment of workers in outsourced operations. Is this particular case, Primark struggled as it failed to show the commitment made towards their suppliers. As in recent years the subject of corporate social responsibility has widened into what is generally referred to as business ethics. Ethics can be defined as moral philosophy which teaches people their duty and the reasons for it. Therefore, it can be said that ethics are principles concerned with interpersonal behaviour. If they are such principles, then: They should be universally applicable; they should provide the standards by means of which the conduct of people can be compared and they can be taught, and thus help to establish generally acceptable standards of conduct. Many business and professional groups, for example in the legal and medical fields, have adopted codes of conduct for their membership which help to establish a standard of acceptable behaviour and these in turn help to further ethical practices. After many draw backs, this is the case with Primark. Primark has developed strong code of conduct and started putting strong focused on ethical trading as they find out soon that the way in which organisations perform their activities within society has an effect both on society in general and on individuals and their values. The question how we can offer good quality fashion at low prices is now answered highlighting their success basing on big volumes, low mark-ups, and minimal advertising. The business responds quickly in the marketplace, and has short lines of management, good buying and excellent distribution. Being firm but fair with their suppliers, and offer terms that compare favourably with those of our competitors is key to their success. In fact, more than 95% of their factories are shared with other brands. Learning from the past, Primark is firmly committed to improving the ethical performance of their business and that of their suppliers and their factories. Primark recognises that as with other retailers, the key challenges in terms of endemic non-compliances remain control of working hours, unauthorised sub-contracting, minimum wages and the definition of a living wage. Working conditions are the most common cause of non-compliance but typically the easiest and quickest to address. The root causes of such poor practice in the supply chain are complex and Primark has a four-fold strategy for supporting compliance with the Code and live up to our ethical standards: supplier selection, auditing, remediation and training (Primark, 2010). Primark also supports many local charitable organisations, community projects, families and individuals across the UK and Ireland throughout the year.    Strategies that firm can Implement Primark has internal capabilities to for growth and analysing its external environment, it is suggested that Primark can invest in growth and further expansion with the focus on market development. The difficulty here lies in deciding which financial aspect to measure, since a companys financial situation represents different things to different people. For example: Shareholders in the company are mainly interested in the returns they receive for the money they have invested in terms of dividends paid and increases in share values. On the other hand, financiers, who have provided funds through loans to the company, are more interested in the risks which these represent as shown by its gearing ratio of debt/equity. Those who are suppliers of goods, services or materials to the company are mostly concerned about its liquidity and its ability to pay for such items in the short term. The companys employees are also interested in its liquidity, as this affects its ability to pay salaries. The Porters Generic Strategy Model including three strategies; cost leader, differentiator or focus/niche where Primark has placed clearly them as cost leader in the market. It has been a success adopting this strategy and therefore to maintain the position as a cost leader is beneficial for Primark. Direction of a strategy can take several different forms such as withdrawal from the market, either full or partial; can be the correct direction to take. Consolidation within a growing market is another strategic option. Market penetration is the third option which means taking advantage of opportunities to increase market share. The ease with which this can be done will depend, as with consolidation, on the current state of the market. If it is a growing market then penetration may be relatively easy, if the market is static it will be much more difficult due to the activities of larger market shareholders. In declining markets the scope for penetration will depend to a large extent on whether or not others are leaving it. Product development is another option and is often carried out by companies in order to cater for changes in consumer demands. Market development is often carried out by companies developing new markets whilst trying to maintain their position in their current market(s). One of the ways market development can be achieved is by companies starting to expanding or engaging in international trade. Diversification is an other direction which companies can take and enter into other products and/or markets, by means of internal or external development. When a company develops beyond its present product and market whilst remaining in the same area, this is described as related diversification. By developing products internally rather than using outside agencies, the company can have the advantage of using skills and knowledge acquired during the development in order to market the product more effectively. Similarly, developing new markets through the use of internal staff helps the sales force to better understand the market. Acquisition is another option. One of the advantages of acquisition as a method of carrying out a strategy is that it enables the company to obtain new products or markets very quickly. In order to test the effectiveness of acquisition Drucker has suggested five simple rules: (i) The acquiring business must consider what value it can add to the acquired business. This may include management, technology, distribution, etc. Finance is necessary but unlikely to be sufficient on its own. (ii) A common core of unity must exist between the businesses in terms of markets, products, technology, etc. This helps to create a common culture or at least sympathy between the two separate ones. (iii) The acquiring companys management must understand the business being acquired. (iv) The acquiring company must put a quality management team quickly into the acquired business. (v) The acquiring business must be able to retain the best management from both businesses. One of the ways that businesses develop is through franchises, where the franchiser is Responsible for setting up an outlet (such as Spudulike or Kwik Print) and for marketing, training, etc., and the franchise holder undertakes specific activities such as selling. Joint ventures are arrangements between organisations which remain independent but have an equal share in the new organisation. In these arrangements the assets are jointly managed but can be separated. These are organisations which are innovative and regularly the first to bring new products into the marketplace. Such a company is likely to be powerful, with a large share in the market and having high resources. It will gain a competitive advantage from being first into the market. However, leaders have to have the necessary strategies to: protect their current market share; encourage existing customers to increase their demand; attract and retain new customers; update the product design/service for its customers; introduce new products to new markets. In order to carry out these strategies, the company needs to adopt a policy of: innovation by always being ahead of its competitors; and fortification by pursuing activities which are aimed at keeping the competition down (ABE/CSP, 2004) It is best suggested that Primark should take more advantage of globalisation and utilise the opportunity to develop new markets for the growth. It can be done by entering more international trading blocks such as European countries or expansion of market through new marketing mix such as improving product distribution by use of internet order and deliver system for customers. Diversification could be a option for the investment and add a sub strategic unit depending on the internal capabilities and external opportunities. However, as Primark has been performing strong in its existing operating business, it would be beneficial to choose a strategy related to market development and keeping the same product. Globalisation and technology As it would be hard to set one definition for globalisation, in generally globalization can be defined as the interdependence, connectivity and integration on a global level with respect to the social, cultural, political, technological, economic and ecological levels. Globalisation came to be seen as more than simply a way of doing business, or running financial markets it became a process. From then on the word took on a life of its own. Centuries earlier, in a similar manner, the techniques of industrial manufacturing led to the changes associated with the process of industrialisation, as former country dwellers migrated to the cramped but booming industrial cities to tend the new machines (Guardians, 2010). As the main advantage of can be seen as globalization increases the economic prosperity and opportunity in the developing world. It also enhances the civil liberties and there is a more efficient use of resources. All the countries involved in the free trade are at a profit which results in lower prices, more employment and a better standard of life in these developing nations. It is feared that some developing regions progress at the expense of other developed regions. However, such doubts are futile as globalization is a positive-sum chance in which the skills and technologies enable to increase the living standards throughout the world. Liberals look at globalization as an efficient tool to eliminate penury and allow the poor people a firm foothold in the global economy. In two decades from 1981 to 2001, the number of people surviving on $1 or less per day decreased from 1.5 billion to 1.1 billion. Simultaneously, the world population also increased. Thus, the percentage of such p eople decreased from 40% to 20% in such developing countries (The World Bank, 2009). Globalisation has benefits in such a way that more economies and societies can take advantage. It has major effect on world market and it has resulted in many advantages. As the efforts of WTO have been paying hard to reduce barriers between the countries to promote international trade, it has been a major aspect of global economy. Goods and people can be now transferred with more ease and speed rather ten those traditional ways involving heavy documentation. One of the major points to be noted for the developing countries is the settlement of their own countries. It also increases the trade opportunities between the two countries that have dispute and by doing so it leads to avoidance of unnecessary disputes or wars. It also increases free trade between other countries and builds new or stronger relationship between nations. One of the biggest advantages is to be observed in the media sector. Global media connects all the people in the world. Not only the trade but also cultures and traditions have been transferred by people in ti all other countries leading to better understanding of cultures, religions and beliefs of each other. The society is more becoming like a global village. It also increases the interdependence of the nation states. Investment of developed countries in developing ones increases which has resulted from increased liquidity of capital. It also results in more flexibility of corporation of corporations to operate across borders increases. Effects of globalisation includes enhancement in the information flow between geographically locations. It will lead to more competition as well as new product development as the global market will be competing with new innovation which can be animated across the globe. The global common market has a freedom of exchange of goods and capital. It is more likely that companies successful in home countries will expand and take advantage of global market. From consumers point of view, it increases the choice, style and quality of same products as companies compete for the market share which will lead to reduction of prices. It has increased foreign investment, including import/export, joint ventures and foreign direct investment. Production options are also increased for the companies to produce worldwide depending on the suitability for the organisation. Free circulation of people of different nations leads to social benefits. Global environmental problems like cross-boundary pollution, over fishing on oceans, climate changes are solved by discussions easier than before. Globalisation has also led to more innovations for the solution of telecommunication by use of communication satellites, the Internet, and wireless telephones. It has also resulted in the launch of criminal courts and international justice movements. The standards applied globally like patents, copyright laws and world trade agreements are increased to protect the rights of the inventor over the whole world. Corporate, national and sub-national borrowers have a better access to external finance and therefore, worldwide financial markets have emerged. International travel and tourism has increased and this has led to more cultural diversity. Worldwide sporting events like the Olympic Games, Cricket Wold Cup and the FIFA World Cup are held globally in selected countries and it has been easier for spectators to follow the games whether through media or attending the event including music and film indu stries. Cross cultural contact increases and there is cultural diffusion all leading to increasing the desire to use foreign ideas and products. This will result in increased immigration between the countries and also give opportunities to local consumer products to be exported to other countries. Due to development of containerization for ocean shipping, the transportation costs are reduced. Technological developments are conceived as the main facilitator and driving force of most of the globalization processes. In simple definition, technology can be seen as the socialized knowledge of producing goods and services by the use of technological resources. Technology has five important elements: production, knowledge, instruments, possession and change. Technology improves our capacity to produce effective and efficient. Technology can also be defined as Know-How to produce products or services better then the competitors using resources in such a manner to gain a competitive advantage over your competitor. Technology is a result of intellectual activities and therefore, technology is type of intellectual property. Today technology is developed through research and development institutions as integral parts of the universities. Instruments are mostly physical such as computers, vacuum cleaners or pencils, but sometimes there are immaterial instruments too, such as databases or algorithms in computer programming. Those people who possess technology also control it. Controlling technology has usually something to do with economics and politics. Therefore we can speak of technologically rich and poor countries and the struggle among them usually in the forms of patents, transfers and protection of intellectual rights. Technological factors also include ecological and environmental aspects, such as RHYPE RLINK http://en.wikipedia.org/wiki/RDHYPERLINK http://en.wikipedia.org/wiki/RDD activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation. (ABE/OB, 2005) Globalisation can be seen as market expansion, concerned with extending the area in which a business operates, so that more potential customers are aware of the products or services you are providing. It also includes extending your operation in different countries. Very often organisations cannot operate at full efficiency unless they take advantage of technological factors that help them to operate globally. The need to compete has continued to grow, so that, having covered a country, the next step is to move over a continent, and then finally to sell your products/services worldwide. Most capital goods companies have moved into overseas markets as their home markets become saturated. As more and more companies become multinational corporations, so more and more service organisations such as insurance companies, have been forced to follow because these multinationals are their clients. Exporting is a method of market expansion and is usually the first step towards international tra ding. This is often followed by the business setting up locations in other countries, where its products are manufactured as well as marketed, in order to take advantage of the local availability of raw materials, or of cheap labour, thus reducing transport costs. Technology factors such as transportation and telecommunication are vital. In the case of overseas investment, it is important to have Know-How to operate effectively and efficient in the new selected market. Apart from transportations technologies, telecommunication will play a major part as overseas department or productions points will be controlled from the head office using telecommunications such as internet and phones. This next stage in development towards global trading is for the organisation to locate some of its manufacturing, distribution or marketing operations overseas will involve all major technological factors. An international business applies marketing operations across national frontiers and will usual ly have subsidiaries established in its major markets. It may even export from these subsidiaries using the technology available to them including transfer of information. Multinational companies operate in a large number of different countries. They differ mainly from international companies in terms of scale and of attitude. National identities almost disappear and managers see the world as a whole, although having local differences. Technology aspects such as research and development and innovations are key factors for those organisations. On the other hand, the technology has supported globalisation heavily and it rapidly increases the efficiency to operate effective in global markets through telecommunications, navigation, satellite, transportations and RD. (ABE, MIO) Conclusion Primark is a subsidiary company within the Associated British Foods group. ABFs core values are shared taking care of our people, being good neighbours and fostering ethical business relationships along with the groups overriding principles in relation to human rights, employment conditions, business practices, suppliers and other stakeholders. Primarks success is led by a unique combination of fast fashion and lean operations with most based in India and Bangladesh. After much criticism, Primark recognises that as with other retailers, the key challenges in terms of endemic non-compliances remain control of working hours, unauthorised sub-contracting, minimum wages and the definition of a living wage. Working conditions are the most common cause of non-compliance but typically the easiest and quickest to address. As the main advantage of can be seen as globalization increases the economic prosperity and opportunity in the developing world. It also enhances the civil liberties and t here is a more efficient use of resources. Technological factors also include ecological and environmental aspects, such as RHYPERLINK http://en.wikipedia.org/wiki/RDHYPERLINK http://en.wikipedia.org/wiki/RDD activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation. Sources Used Managing in Organisation, 2004, Association of Business Executives Organisation Behaviour, 2004, Association of Business Executives Corporate Strategy and Planning, 2004, Association of Business Executives Examples of how Technology Affects Processes in Global Business and e-Business:: http://www.securebusinessresource.com/Examples%20of%20how%20Technology%20Affects%20Processes%20in%20Global%20Business%20and%20e-Business.htm ASAN Social accounting and social audit http://www.asan.org.uk/page.php?identity=social_accounting_and_audit Green working (2010) www.eastsussex.gov.uk/environment/climatechange/working/ Bbc king of no frills fashion http://news.bbc.co.uk/1/hi/business/4466986.stm Primark (2010) www.primark.co.uk/ethical/trading Corporate Eye (2009) http://www.corporate-eye.com/blog/2008/06/handling-a-crisis-at-primark/ Primark is named as least ethical clothes shop By Martin Hickman Consumer Affairs Correspondent Thursday, 8 December 2005 http://www.independent.co.uk/news/uk/this-britain/primark-is-named-as-least-ethical-clothes-shop-518600.html Ethical consumer, Panorma puts Primark on the rach http://www.ethicalconsumer.org/EthicalConsumerBlogs/tabid/62/EntryId/201/Panorama-puts-Primark-On-The-Rack.aspx Business Social responsibility (1973), Watkinson Report www.submityourarticle.com/articles/easypublish.php?art_id Guardians What is globalisation? http://www.guardian.co.uk/world/2002/oct/31/globalisation.simonjeffery The World Bank (2009) Globalisation http://siteresources.worldbank.org/INTDECINEQ/Resources/1149208-1169141694589/GlobalisationandConvergence.pdf